FTSE closes at 6078.7

London's blue-chip stocks edged tentatively ahead as an element of calm returned to the market following last week's turbulence.

The FTSE 100 Index closed 14.5 points higher at 6078.7, but this was significantly lower than the 100-point high seen earlier in the session as investors swooped to snap up cheap shares.

European markets were earlier buoyed by strong gains in Asia after sentiment lifted following the US Federal Reserve's decision to cut the interest rate it charges banks to borrow money. That action caused the Footsie to surge 3.5 per cent by the close on Friday.

However, an uncertain start on Wall Street held back London's leading stocks, which had risen by more than 1 per cent during the session.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, believes it is too early to herald the up-turn as a recovery.

He said: "It is not a recovery at this stage. There are still questions over the ongoing intervention to reassure markets and we are still no nearer to knowing the extent of the credit problems.

"It will be a while yet before confidence returns."

Mining stocks added their weight to the Footsie as investors picked up bargains following the battering taken by the sector in recent days. Meanwhile, Northern Rock benefited from a reversal in its recent fortunes to close up 1 per cent amid speculation that it could take advantage of the Fed's cut in inter-bank lending rates.

The FTSE 100 Index is still more than 100 points off where it started the year.

Wall Street fluctuated in early trading as investors tried to asses whether the Federal Reserve was likely to keep cutting borrowing rates.

The central bank also injected a further $3.5 billion (£1.76bn) into the banking system shortly after US markets opened, meaning it has pumped in more than $120 billion (£60.5bn) of liquidity over the last week.

Additionally, data which gauges future economic activity showed a weaker-than-expected rise during July.

Paul Webb, a trader at CMC markets said: "Clearly the credit market woes are going to linger for some time yet, whilst the release of some lacklustre economic data in the US is doing little to provide help either.

"Some of the volatility may have disappeared, but there's no certainty at all that this won't now return."

Stock markets across the world have been hit by the troubles seen in America's sub-prime mortgage market.

Research revealed private investors started taking shelter from stock market volatility months ahead of the turbulence now rocking shares across the globe.

Individual UK investors sold a net £5.9 billion of equity holdings in the eight months to the end of July and turned to stocks which were less affected by bad economic news and market turmoil, according to a study by Capita Registrars.

The Footsie has tumbled from more than 6700 since early June as fears mount over the fall-out from the US default rate problems.

Blue chips have endured a rollercoaster ride, with stocks swinging wildly between positive and negative territory, dropping below 6000 at one stage last week before the most recent rally.

Analysts said at the weekend that it was unlikely the so-called correction had bottomed out.

Sub-prime borrowers in the US are continuing to fall into default, which is again leading to concerns over the US economy.

And while credit markets were given a boost by the Federal Reserve's interest rate cut last week, the full level of exposure of financial institutions to the sub-prime market is still unknown.

There are also worries over the impact on insurers of claims relating to US class action cases from borrowers against sub-prime lenders.

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